INDIA: GST Not Viable, Say Hospitality Operators

The rates announced by the Goods and Services Tax Council on Friday has comes as a shocker to the hospitality industry. Four tax slabs of 5%, 12%, 18% and 28% have been fixed for services including telecom, insurance, hotels and restaurants.

Expressing disappointment, the hospitality sector said the rates are too complex, high and uncompetitive, and said they will be approaching Union Finance Minister Arun Jaitely and Union Tourism Minister Mahesh Sharma for a review of the rates.

The GST Council announced that non-AC restaurants will charge 12% GST on food, AC restaurants and those with liquor licence 18% per cent, and five star hotels will charge a GST of 28%.

Dilip Datwani, president, Hotel and Restaurant Association, Western India (HRAWI) said, The government should realise that taxes in neighbouring countries like Myanmar, Thailand, Singapore, Indonesia range between 5% and 10%. We cannot afford to have this complex and high-rate GST. This is simply not viable. Tourists will simply skip India.

A major hurdle for the hospitality and tourism sector in India is its uncompetitive tax structure, says former HRAWI president Bharat Malkani.

A country as small as Singapore gets 10.9 million tourists, while India gets 6.31 million.

Nations like Malaysia and Thailand attracted 24.7 million and 19.09 million tourists in 2014 and earned foreign exchange worth $18.3 billion and $26.26 billion respectively. In contrast, India managed only $94 million.”

Gurbaxish Singh Kohli, senior vice-president, HRAWI stressed that hospitality is not only a high foreign exchange grosser, it is also among the largest tax generators. “By the Prime Minister’s own declarations, the growth of the nation will parallel the growth of tourism.

It’s perplexing that the industry is being taxed to death. If GST is not reconsidered, foreign exchange inflow will dry up sooner than later.”

Hotels and lodges charging per-day tariff of ₹1,000 will be exempt from GST, while those charging up to ₹2,000 per day will pay 12%. Hotels charging ₹2,500 to ₹5,000 will pay 18%, and those with per-day tariffs above ₹5,000 will be levied GST of 28%.

Mr. Datwani added, By rationalising taxes, India can easily quadruple its tourism revenues, and in absolute terms earn more money for the exchequer.

The decision to place hotels in the 18 per cent slab may not be in the best interest of tourism in the country, and the industry feels dejected.

GST is the biggest reform this year, says Prof. Neeraj Hatekar, who teaches Economics at the University of Mumbai. He predicts that GST will create a common market for goods and services, reduce the aggregate tax burden as tax on taxes is being done away with. We should not worry about the inflationary impact; it’s not going to be much.

It will increase economic activity in the economy leading to more jobs, more activity and faster growth. Hence, in the long run it will positively affect the common man. All industries should be happy with this reform.

The common man should be relieved as foodgrains and milk are exempt and other essential items of mass consumption like edible oil, sugar, tea, life-saving drugs and electricity bills should cost less.

However, it’s too early to predict the overall effect of GST on the common man; at least he will be spared the assault of multiple taxation. says Prof. Geeta Menezes, who teaches Economics at Mithibai College.

According to Rohit Muraleedharan, Economics professor at NMIMS University, GST is going to increase production through a boost in domestic consumption with the right rates, It might also lead to an increase in tax net as GST will encourage tax payment and might act as a self-policing one.

Under GST, entertainment tax will be merged with service tax and a composite 28% levy will be charged on cinema services and on gambling and betting at race courses.

While the rate proposed for cinema halls is lower than the current 40% to 55% , it may not result in a reduction in ticket prices as States continue to hold the right to levy local charges on them.